Restaurant Franchising: What You Need to Know to Decide If It's the Best Way to Grow Your Business

For the independent restaurateur, there is perhaps no restaurant growth strategy as complex, daunting and downright inviting as franchising. The obstacles are steep, but the payoff can be tremendous, and "rags to riches" stories abound. If franchising is your goal, it is never too early to start thinking about it; however, before you start dreaming about becoming the next McDonald's® or Chick-fil-A®, you need a reality check. The operational and legal landscape of franchising is not a forgiving place for the naïve or unprepared.

Jim Laube, president of RestaurantOwner.com, interviewed two of our contributors, both of whom have expertise and experience in restaurant franchising. Wayne Bunch is an attorney who built and led a successful restaurant franchise and now specializes in franchising law. Jay Goldstein served as an executive for multiunit national restaurant franchises and is a restaurant franchise consultant. Here's what they had to say.

JL: How would you define the process of franchising from a legal perspective?

Wayne: I'll give you a layman's definition. Basically it's providing support for the setting up and the running of a business, in this case a restaurant business, and the business being operated under trademarks or service marks that are owned by the franchisor. In turn for supplying the training and the support and the trademarks, the franchisor [the one who has created the concept] earns from the franchisee an initial fee and an ongoing royalty.

That's the basic franchise arrangement and it's an interesting concept because many of my clients will come to me and they'll say we don't want to franchise because we don't want to have to comply with all of the federal and state franchise laws, so we're just going to license our concept. And frankly it doesn't work because you fall within the Federal Trade Commission's (FTC) definition of a franchise. You are in fact a franchise whether you call it a license or anything else, and then you must comply. So some clients find themselves offering franchises and not really knowing it until they actually talk to a franchise attorney.